Still paying off Christmas debt? Here’s what to do
While the memory of Christmas may be fading fast, some of us may still be feeling the financial impact of the holidays. If you went into debt during the holidays, don’t worry, you’re not alone. The good news is there are steps you can take right now to get help and start getting back on track.
Review your current Christmas debt
What if you can’t pay back what you owe?
Avoid it happening again next Christmas
Review your current Christmas debt
It can take up to four months to pay off Christmas debt, a survey by Censuswide on behalf of Lowell found in 2021. So how do you start to tackle the backlog and become debt free in 2023?
Take a moment to review your finances to see how much debt you still have and what you can do to pay it off. First, check your bank account and go through the transactions you made during the Christmas season.
Apart from your bank transactions it's a good idea to review your credit accounts, such as any credit cards or loans you used during the holiday season. By checking the total costs, you incurred over Christmas, you'll have a better sense of the overall amount you owe and when the payments are due. This can help you stay on top of your debt and plan for paying it off in a timely manner. It may also help you to avoid making the same mistakes later this year and encourage you to stop overspending or save up for what you need.
In December 2022, research by Deloitte found that one in ten consumers were planning to avoid gift buying altogether as the impact of the cost-of-living crisis hit hard. Making your money last longer has never been more important.
Make a plan and prioritise
Once you've reviewed your Christmas spending and calculated the outstanding balance, it's a good idea to create a repayment plan. Having a plan can help reduce any anxiety you may be feeling and provide a clear path and timeline for getting your finances back on track.
You will need to prioritise the debts you have to repay, starting with those that are costing you the most. It can be tempting to pay off the smaller debts first, but if you have debt with a payday loan lender or high interest credit card, leaving these until last could cost you more overall, with interest added on top of the amount borrowed. Of course, it is always important to ensure you use your credit card responsibly when making purchases. That way, you can minimise your debt and keep your finances in good shape.
The Bank of England found that the average credit card interest rate as of September 2022 was 22.2 per cent, the highest rate since 1998. And in February 2023, the Bank raised its interest rate by 0.5 percentage points to 4 per cent. This interest rate change means the cost of borrowing will rise.
Prioritising the payments which have high-cost implications can help to keep the total costs of your debt down. After you have identified which of your debts are the most important to settle, you can work out how much you can afford to pay to start reducing them. If you are unsure how much you can pay, you may find online budget calculators helpful such as both the Money Advice Service and Citizens Advice have calculators that are simple to use.
If you are looking at paying off credit card debt but can only afford to pay a small amount, you may only have the option to pay the minimum repayment required. However, it takes longer to repay the debt, and you will be charged interest for money owed outside your grace period, if you had one. Doing this often may result in debt spiraling out of control too.
If you have a balance that is being charged interest, you may consider a 0% interest balance transfer credit card. By transferring the balance to a card that gives you an interest free period, it gives you a better chance at chipping away at what you owe, without having to pay more in interest too. Before applying for cards such as this, it’s wise to compare balance transfer cards to see what offers are available, and look at any fees associated, (there is usually a small transfer fee which is a percentage of the amount you are wanting to transfer). Also, double check your credit score before applying to see what your chances of approval might be, if you have taken out lots of credit recently, you may not want to put any more searches on your credit file.
It’s easy to get carried away during the festive season and be tempted to take out a quick loan to cover the costs. The problem is many quick loans - like short term loans, come with high-interest charges. Short term loans should only be used as a one-off to cover an emergency and not if you are struggling financially. If you find you have debt with multiple lenders, you may want to look at a debt consolidation loan. A debt consolidation loan will mean your debt sits with one lender so that you can have one monthly payment to make, which may help you have more control of your finances.
Another popular option for Christmas shopping is using Buy Now, Pay Later, which may seem like an easy way to make a purchase at the time but can also come with hidden fees and higher interest rates if not used sensibly. Reviewing any purchases made through Buy Now, Pay Later can help you to understand all the terms and conditions of any loan or credit service you used and make an informed decision on what to prioritise paying back first.
What if you can’t pay back what you owe?
If you are struggling to pay back what you owe, contacting the creditors who you currently owe money to and speaking to them in detail about your financial situation can help you to put a plan in place to begin to alleviate some of this debt. This is particularly important if, after working out your budget for repaying your Christmas debt, it is much larger than you expected or possibly showing you have no affordability at all.
Speaking with your creditors can be daunting, but most are able to empathise with your situation and look to help come to a repayment agreement. For some people, Christmas debt comes on top of existing debt issues. Many miss repayments on everyday household bills in order to fund their holiday spending. Going directly to these creditors, especially if any are for essential bills such as a mortgage, rent or utility bills, will enable you to improve your situation.
Avoid debt happening again next Christmas and start saving early
Once you have repaid your Christmas debts, enjoy being debt free. This is also a good time to consider opening a savings account to prepare for the future and avoid falling back into the same cycle on repeat.
Saving up for Christmas, even just a small amount each month, is a good way to get ahead of the curve. Putting aside just £25 a month will soon add up to a significant £300 spending pot. You can also look to stretch your savings even further by comparing savings accounts to find the best deal. That way, you can make the most of your hard-earned money and ensure you're getting the most out of your savings.
Many people choose to pick up gifts, wrapping paper, or non-perishable food items during the year, which can help save money on your groceries over the Christmas period. Creating a list of the specific products you intend to give could help you take advantage of sales and special offers, for example by helping you to shop Black Friday and Cyber Monday deals without overspending.
It’s also never too early to set a sensible budget for Christmas that you will be able to stick to. Ultimately, changing your mindset about Christmas is the easiest way to save money next time.
If you find that you are struggling financially and aren’t sure what to do, take a look at our article on what to do and where to find help to get yourself back on track. You could also consider looking at simple ways to start saving now if you want to plan ahead this Christmas.